I am Director of Entitlement and Budget Policy for the Heartland Institute, Senior Advisor for Entitlement Reform and Budget Policy at the National Tax Limitation Foundation, General Counsel for the American Civil Rights Union, and Senior Fellow at the National Center for Policy Analysis. I served in the White House Office of Policy Development under President Reagan, and as Associate Deputy Attorney General of the United States under President George H.W. Bush. I am a graduate of Harvard College and Harvard Law School, and the author most recently of America's Ticking Bankruptcy Bomb (New York: Harper Collins, 2011).
I write about new, cutting edge ideas regarding public policy, particularly concerning economics.

Reaganomics Vs. Obamanomics: Facts And Figures

In February 2009 I wrote an article for The Wall Street Journal entitled “Reaganomics v Obamanomics,” which argued that the emerging outlines of President Obama’s economic policies were following in close detail exactly the opposite of President Reagan’s economic policies. As a result, I predicted that Obamanomics would have the opposite results of Reaganomics. That prediction seems to be on track.

When President Reagan entered office in 1981, he faced actually much worse economic problems than President Obama faced in 2009. Three worsening recessions starting in 1969 were about to culminate in the worst of all in 1981-1982, with unemployment soaring into double digits at a peak of 10.8%. At the same time America suffered roaring double-digit inflation, with the CPI registering at 11.3% in 1979 and 13.5% in 1980 (25% in two years). The Washington establishment at the time argued that this inflation was now endemic to the American economy, and could not be stopped, at least not without a calamitous economic collapse.

All of the above was accompanied by double -igit interest rates, with the prime rate peaking at 21.5% in 1980. The poverty rate started increasing in 1978, eventually climbing by an astounding 33%, from 11.4% to 15.2%. A fall in real median family income that began in 1978 snowballed to a decline of almost 10% by 1982. In addition, from 1968 to 1982, the Dow Jones industrial average lost 70% of its real value, reflecting an overall collapse of stocks.

President Reagan campaigned on an explicitly articulated, four-point economic program to reverse this slow motion collapse of the American economy:

1. Cut tax ratesto restore incentives for economic growth, which was implemented first with a reduction in the top income tax rate of 70% down to 50%, and then a 25% across-the-board reduction in income tax rates for everyone. The 1986 tax reform then reduced tax rates further, leaving just two rates, 28% and 15%.

2. Spending reductions, including a $31 billion cut in spending in 1981, close to 5% of the federal budget then, or the equivalent of about $175 billion in spending cuts for the year today. In constant dollars, nondefense discretionary spending declined by 14.4% from 1981 to 1982, and by 16.8% from 1981 to 1983. Moreover, in constant dollars, this nondefense discretionary spending never returned to its 1981 level for the rest of Reagan’s two terms! Even with the Reagan defense buildup, which won the Cold War without firing a shot, total federal spending declined from a high of 23.5% of GDP in 1983 to 21.3% in 1988 and 21.2% in 1989. That’s a real reduction in the size of government relative to the economy of 10%.

4. Deregulation, which saved consumers an estimated $100 billion per year in lower prices. Reagan’s first executive order, in fact, eliminated price controls on oil and natural gas. Production soared, and aided by a strong dollar the price of oil declined by more than 50%.

These economic policies amounted to the most successful economic experiment in world history. The Reagan recovery started in official records in November 1982, and lasted 92 months without a recession until July 1990, when the tax increases of the 1990 budget deal killed it. This set a new record for the longest peacetime expansion ever, the previous high in peacetime being 58 months.

During this seven-year recovery, the economy grew by almost one-third, the equivalent of adding the entire economy of West Germany, the third-largest in the world at the time, to the U.S. economy. In 1984 alone real economic growth boomed by 6.8%, the highest in 50 years. Nearly 20 million new jobs were created during the recovery, increasing U.S. civilian employment by almost 20%. Unemployment fell to 5.3% by 1989.

The shocking rise in inflation during the Nixon and Carter years was reversed. Astoundingly, inflation from 1980 was reduced by more than half by 1982, to 6.2%. It was cut in half again for 1983, to 3.2%, never to be heard from again until recently. The contractionary, tight-money policies needed to kill this inflation inexorably created the steep recession of 1981 to 1982, which is why Reagan did not suffer politically catastrophic blame for that recession.

Real per-capita disposable income increased by 18% from 1982 to 1989, meaning the American standard of living increased by almost 20% in just seven years. The poverty rate declined every year from 1984 to 1989, dropping by one-sixth from its peak. The stock market more than tripled in value from 1980 to 1990, a larger increase than in any previous decade.

In The End of Prosperity, supply side guru Art Laffer and Wall Street Journal chief financial writer Steve Moore point out that this Reagan recovery grew into a 25-year boom, with just slight interruptions by shallow, short recessions in 1990 and 2001. They wrote:

We call this period, 1982-2007, the twenty-five year boom–the greatest period of wealth creation in the history of the planet. In 1980, the net worth–assets minus liabilities–of all U.S. households and business … was $25 trillion in today’s dollars. By 2007, … net worth was just shy of $57 trillion. Adjusting for inflation, more wealth was created in America in the twenty-five year boom than in the previous two hundred years.

What is so striking about Obamanomics is how it so doggedly pursues the opposite of every one of these planks of Reaganomics. Instead of reducing tax rates, President Obama is committed to raising the top tax rates of virtually every major federal tax. As already enacted into current law, in 2013 the top two income tax rates will rise by nearly 20%, counting as well Obama’s proposed deduction phase-outs.

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Reagan borrowed way more more in terms of inflation adjusted dollars that Obama: All of those supply side tax cuts combined with $3 Trillion (1980s dollars) worth of stimulus borrowing (primarily for military build-up and arms race).

Reagan was the ultimate borrow and spend. He even raised taxes on Social Security and then borrowed from the trust fund with IOUs to pay for the millionaire supply-side tax cuts.

Let’s compare the Reagan approach with the level of GDP growth, job growth, personal income growth, and debt growth/reduction during Roosevelt or how about the LBJ years or the Ike years. Suddenly the bloom is off the rose isn’t it?

We need to invest more in infrastructure. We need to tax imports the way other countries tax our imports. We need to renegotiate our trade agreements (“buy from us or we will not buy from you”). We need to jail tax cheats especially non-filers and those who hide money in Antigua, Cayman Islands, etc.

We need to drill for oil and use our coal but we also need to be building oceanic/tidal power dams, solar farms, wind farms, nuclear, and geothermal.

It is time to stop being the world’s security guard, close dozens of unnecessary bases, and bring the troops home and put most of them on the border with Mexico.

We need Medicare for All. It would reduce administrative/overhead spending on health care by 30% and provide better universal coverage. It would control costs and provide incentive for preventative care. It would eliminate the agencies that regulate the insurance industry and get rid of every state run Medicaid program. It would make malpractice/tort reform simpler and less expensive. It would eliminate 50% of all bankruptcy cases. It would help companies stop wasting resources on health care and allow them to put it into capital expenditures and labor. It is the best thing that we could do for smaller government and getting non-healthcare companies out of the healthcare business! We could pay for it with some form of sales tax so that everyone pays into an income based system.

{{{ When President Reagan entered office in 1981, he faced actually much worse economic problems than President Obama faced in 2009. }}}

What was the national debt as a percentage of GDP in 1981? Oh yeah, in 1981 they still talked about Gross National Product not Domestic Product.

The number of cars in the US didn’t reach 200,000,000 until 1995. How much do Americans lose on the depreciation of cars every year that economists don’t talk about. Ask some economists the total depreciation of the 900,000,000 cars around the world.

Nobody was worried about Global Warming in 1981 either. No refugee camps for polar bears to pay for. How many Baby Boomers were retiring back then?

In its irrationally exhuberant efforts to elevate Reagan to demigod, this article fails to mention the Mankiwnomics (Bush-o-nomics) that enabled the export of jobs from the USA by the tens of millions, reducing the tax base of the middle class complicated by the largest tax cut in US history – a zero percent tax on offshored revenues (“deferred” until repatriated – aka, NEVER), while offsetting onshore income with offshore expenses. A NEGATIVE tax.

When Reagan was in office, there were a lot of people who remembered the economic prosperity of the 1950′s. Reagan’s policies actually mimicked in result the Laissez-faire approach of Eisenhower – less government intervention leading to prosperity for many Americans willing to work for that prosperity. However, even while the success of Reaganomics has observable positive results, he was so demonized by the the press in the aftermath by socialist media, that his years of prosperity (upon which Clinton coat-tailed) are referred to not as the prosperity of the 80′s, but the destructive crass American arrogance and extravagance. Reagan was successfully painted into an anti-environmentalist corner by his opposition so much that his prosperity producing economic plans are still demonized. Until the fallacy of the press and their anti-Reagan arguments of “Damning the Alternatives” is exposed, the Reagan legacy of prosperity will continue to be suppressed.

I agree with you in some ways, but I always believe that it is an unfair comparison you are going to make. First, it was really brave on Reagan to allow the Federal Reserve to use monetary policy to hurt growth in the short run, but end up helping out the country in the longer run. Still, Reagan’s recession while bad and very unprecedented was not as bad as housing recession. Generally these take way longer to get out of and the country has years of tepid growth. A more typical recession features roaring growth in the path to recovery. You can say that his cutting tax rates helped growth—completely agree with that; but, it is important to also realize he did had LARGE deficit spending. Lastly, to say that Obama is rapidly shifting from the policies of the Reagan era is very simplistic and not true. He has cut taxes and had a lot of spending. Not different then Reagan if you really think about it.

The truly sad part is that Reagan also raised the worst possible tax to a combined whopping 15.3% on those least able to pay it. He hammered the working poor with this unbelievable payroll tax. Now they call it the Social Security and Medicare though anyone but the woafully ignorant knows that the payroll tax has almost NOTHING to do with the actual benefit my 19 year old daughter will receive(if she gets anything at all).

I voted for President Reagan and I thought he did a good job while in office. I also voted for President Obama and I think he is doing a good job in office too. Mr. Ferrara is a writer who attempted to write an article showing how much better Ron was than Barack…but that is as absurd a task as comparing apples to oranges.

You just can’t compare policies implemented between 1981-89 with policies implemented between 2008 and now…it’s a different world, (i.e. you can’t compare the cold war era with the middle east war era.)

The author really needs to step into the current world and attempt to write articles which will serve to enlighten his readers…rather than to merely provide himself with a venue to spout his own beliefs.

This is retardedly biased. 1. The presence of an exclamation point. An exclamation point should almost NEVER be used in a news article such as this, and putting one in shows great zeal, approval, and excitement on a topic, which in turns hints on bias. Second: This: Even with the Reagan defense buildup, which won the Cold War without firing a shot. REAGAN DID NOT END THE COLD WAR. He takes credit for it, but he didn’t do ANYTHING. The Soviet economy was utterly collapsing, and internal turmoil, plus eastern European political changes caused the collapse. about a minute ago · Like

So, Regan did actually double the Federal Revenue by fixing the tax rates, right? Why does it still show in historical records for tax rates that 50% taxes is what remained in effect for most of Reaganomics? How is it that Reagan also spent tons more money with that doubled budget? Do you think the economic situation, Reagan starting office at … was it ~7% unemployment then having it increase to ~11%.. I am sure you mentioned the correct numbers (at least) here. How exactly do you attribute 25 years of economic boom all to Reagan? Why is it that most economists find that macroeconomics actually didn’t work? Was there really a depression when Regan entered office? Has Obama raised taxes at all in the period he has been in office? Then why has federal revenue been virtually flat? Do you have any real information other than a minor few figures to support your point, or will you admit that not only do you know zero, and probably are not an economist, that this is just a really long line of BS and, better stated, damaging misinformation. I am glad it is a year over now so that you really do look like an idiot.